Chapter 1: The Capital Market [Simplified CSC Notes]

• Capital is not what you make but what you keep
• Wealth is savings, capital comes from savings
• Savers: Individuals, corporations, governments
• You can take your savings and go into Direct Investments (like property, equipment, infrastructure) - these are called real assets
• Or you can take your savings into Indirect Investments (like stocks; we buy share of a company and we give company the money, bonds; we lend money to companies and governments, GIC; we leave money with the bank and the bank pays us a level of interest) - these are called financial assets/ claims
• Bonds are claims against asset
• The money we give to users, they give us one of these claims (financial assets), they take the money and invest in real assets, so we buy a stock of the company that buys apartment buildings. Either way we're still investing in apartment buildings, directly we own the real thing and indirectly have a financial claim on the real thing

3 Characteristics of Capital:
1) It is mobile - it can travel anywhere in the world
2) Sensitive to the environment - if you're in an area with high taxes you can move to an area with low taxes. If you're in an area with low interest rates, low returns you can move to an area with high interest rates, high returns to get a better yield
3) Scarce - you have so much of it

• The only source of capital is savers. If somebody can't save, they have no investment potential
• Savers become investors. Investors can be retail (like you and I investing our extra earnings), institutions (like pension funds, insurance companies) or foreign investors (like other investors in other countries investing their savings in our country)
Users of Capital

1) Individuals use capital when they buy a house and need mortgage because they don't have all the money so they're borrowing